According to the Polish Statistical Office, retail sales increased 5.7% year-on-year in 2016, with sales of furniture and household appliances even increasing 9%. This was mainly due to a new child benefit programme launched by the government in mid-2016, by which families receive zloty 500 (about EUR 115) monthly for second and all subsequent children up to the age of 18. Given the positive economic outlook for 2017, with GDP and household consumption forecast to increase again above 3%, further robust consumer durables sales growth is expected.

However, as increased government spending such as the child benefit programme puts strain on Poland´s public finances, the government has intensified tax controls and tightened the law in order to increase tax incomes. This means that despite good sales prospects there is substantial uncertainty related to tax issues amongst retailers. Especially companies trading with IT and consumer electronics are particularly targeted by tax controllers, and in 2016 one out of the three largest IT distributors went into court restructuring due to tax issues.

A progressive retail tax introduced in September 2016 was suspended in December 2016 until January 2018 after the EU Commission ordered Poland to do so, based on concerns over breaching EU state aid rules and unfair competition. The measure would have taxed retailers along turnover size, excluding small retailers, but affecting mid-sized and larger retailers.

Consumer durables retailers’ profit margins remained stable in 2016 due to the robust sales performance. There were no significant changes in the market structure, notably major bankruptcies, mergers or alliances.

Payment terms are 60 days on average, but very much depend on the type of goods - from 30 days for electronics and small appliances to 180 days for large appliances. The number of payment delays and insolvencies is low in this industry, and no major increases are expected in 2017. Despite an additional bank tax introduced in 2016, the original expectation that corporate loan costs would increase has not yet materialised.

Given the continued sales growth, but also taking into consideration the challenges mentioned above like increased tax controls, our underwriting stance remains neutral/moderately positive on the consumer durables retail sector. In the furniture segment our underwriting stance is more relaxed, as businesses in this subsector are less affected by VAT issues.

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